tv Worldwide Exchange CNBC September 14, 2009 4:00am-6:00am EDT
hello, welcome to a special edition of "worldwide exchange." one year after the collapse of lehman rocked the world. >> we kind of approached the edge and looked over. >> an enormous shock was delivered to the system. >> the collapse of lehman was a pivotal moment. >> we had to prepare for something that was very big. really big.
>> it rocked the world. more focus in asia, julia. when wall street titan lehman brothers was forced into the bankruptcy, it pushed the markets to collapse. led to the biggest recession since the 1930s, and within 24 hours, $700 billion had been wiped off markets around the globe. dow jones slumped 500 points, the biggest one-day fall since 9/11. and in this special edition of "worldwide exchange," we're going to trace the global fallout and assess what's really changed for investors, bankers, regulators, and business leaders right across the globe. we're going to be joined by an extraordinary lineup of guests, including jim rogers and lord lamont, the weekend that changed
the world with special reports, as well, from london, hong kong, mumbai, and plenty more. and we'll also examine the worlds of banking, regulation, and economics to find out whether we've changed enough to prevent another lehman catastrophe in our system. >> and of course we are bringing you an international perspective out of all of that. and on the news of the day, i'm jul julia borsjen. and here in asia we'll also be wondering and asking can beijing lead the global economy out of the recession? we'll ask jim rogers whether china's recovery lacks balance. >> reporter: and i'm steve sedgwick in the heart of the financial sector. we'll speak to bankers who say the financial sector has recovered. the question is, is it for good?
>> let's go straight to the discussion right now. joining us today is julian pendot, and with us throughout the entire two hours of capital connection here in singapore is jim rogers, chief executive officer of rogers holdings. thanks so much for coming on today. we want to take a bit of a step back here and kind of look back at that moment one year ago when markets around the world and investors around the world heard about lehman brothers going under essentially. where were you? do you remember? what were your initial thoughts about this. >> i thought thank goodness they're finally letting somebody collapse. this is great, maybe they'll let the system clean itself out. i think it was just hank paulson because everybody said you bail out everybody you bail out everybody we had to make an example. he should've let ten people go bankrupt. >> jim, could you really let ten -- it was bad enough the week after lehman collapse we had a run on the money market funds, if you let more than lehman go, we would've had global financial collapse.
who would that have been good for? >> there's 6 billion people in the world, which is a bigger world than just cnbc. banks have been going bankrupt for a few hundred years, the world has not come to an end. and the way the system is supposed to work, when somebody fails, you let him fail. you let competent people take over the assets, reorganize the assets, and start over again. what we're doing now is we're taking the assets away from the competent people and giving them to the incompetent people and saying now you can compete with them with their money. this is just propping up the system. this is the noing go to solve the problem. you remember zombie banks from the 1990s in japan? this is not going to solve our problems at all. we're going to carry it over and over and over again, you're going to be reporting on this for several more years. >> does jim have a point? >> actually i disagree. because the problem is if i agree with jim that we're going down, we have got zombie banks,
there's a whole host of issues to do how the earnings have been largely fictitious in my point of view. if you let more go down, then systemic collapse is a system that flooded the liquidation would've brought down the good banks with the bad banks. i think the problem is there's one, there's an issue of moral hazard and i'm sure that jim would agree with this versus the practical. you let the reckless fail, the practical you need to support the system because yes there's 6 billion people out there and most of them are dependent on the financial system in one form or another to get access to credit. >> your point is, if you let another lehman go, two or three lehmans go, the whole system would've collapsed and hsbc might have collapsed, as well. >> the difference now is the leverage levels. the ratios were simply astoni astonishing. before like the good old days when banks were boring and regulated utilities as they should be and hopely will become
again. at this time around, it was different. >> but julian, julian, you're talking about leverage. how can it possibly be that the solution to too much debt and too much consumption is more debt and more consumption. you're just releveraging the system, four or five, or ten times more than it was before. how could that be the solution to our problem?m? >> if you let them all go down at once, there wouldn't be a system left to fix. it is crazy in the west the answer to having too much, and in china, the answer to having too much structural capacity is building more, what i'm saying, though, trying to put the patient on life support and then try to sort it out. and what has to happen in terms of regulation has to be real regulation that cuts, not just accounting changes. i don't disagree with you that much. >> julian, more regulation? we have regulations. the regulators didn't know what they were doing.g. the regulators went to see
madoff six times in 12 years. there are plenty of regulations. the regulators were in incompetent. the guy running fannie mae, i don't know why he's not in jail. the government had at least 1,000 regulators looking after his company, every single day eight hours a day and didn't see what was going on. what do you mean more regulation? >> well, for start, you have the right regulation.. part a lot of the problems came from the government themselves, fannie and freddie were way too big. they've been failed out financially and their market share's gone up from 33% in the first after of '06 to 70% now. they factor in nationalization of the housing. unfortunately the two agreements allowed and encouraged perhaps all of these off balance sheets. that has to stop. the fovs, spvs, securitization, bank's been forced to lend to people who were more unlikely to
pay it back.. i agree, that regulation was disastrous. nonsense, you have to go back to basics and the systemic dismembering of the act, one by one, all the checks and balances, it's like a movement from democracy. all the checks and balances were dismantled. so you have to have the right regulation. so if you're proposing to have no regulations at all, then all the banks will blow themselves up again pretty quickly. >> jim, let me ask you a question -- >> i'm suggesting -- >> sure. >> jim, yeah, let me ask you a question. over my right shoulder is the old lehman brothers building. very reduced rate. and over my left shoulder, we've got barclay's, have people really taken their capital level down? or have they moved it from one side of the street to the other side of the street? is the system the same despite the fact that a couple of -- >> of course the system is the same.
the debt hasn't disappeared. if you liquidated the debt, maybe it would have changed, but the same old debt is still there, it's in a different place, but now it's four or five or six times as big because the governments have all taken on even more debt. the debt's still out there.e. this hasn't solved the problem, it's made it worse. >> let me just for a second go back to julian. if i could for a second. let me go back to julian. the countries in the world that have had this problem before have solved the problem by letting people liquidate. skacandinavia in the early '90s they had a disaster for three years, but then they came out of it and grew like crazy, korea, russia, mexico, this has happened over and over and over again. the countries get in trouble, clean out the debt, a lot of people go bankrupt, it's miserable for that while, but then they boom afterwards. japan tried it your way. they propped everybody up and now we have zombie banks and
zombie companies. >> jim, first of all, it's not what i'm proposing. i'm saying we shouldn't go down the japanese route. but we shouldn't have allowed them all to fail at once.. i understand about working through crises. i lived and worked through southeast asia. so i'm far more on the same page as you than you think.k. i was going through barclay's accounts the other day. and if you have a look at their balance sheet, they've deleveraged by 25%. that's because there's quite a lot of money on the balance sheet has just disappeared through new regulations something called derivatives growth. i call barclay's ir. you can net one item up against another. that's my point about regulation. the problem is if they just introduce new rules, you can netting off the size of the balance sheet. we have zombie banks, that's accounting rule changes. it's fiddling at the margins and i'm in agreement with you, jim.
>> hallelujah. >> julian pendock and jim rogers, thank you both so much for joining us. president obama will speak outside federal hall in new york to mark the one-year anniversary of the demise of lehman brothers.. he'll be pushing congress to take action on regulatory reform in order to prevent another economic collapse. an administration official said the president will decry the hands-off approach to do irresponsible lending.g. president obama will be calling on global partners to coordinate so the world will not experience a future economic crisis. meanwhile here in europe, cadbury's ramped up its defense warning a tie-up would be unappealing. released a letter describing u.s. food giant as a conglomerate.
comes after they fended off a $15 billion takeover bid. shares of the company saw an 18% gain in tokyo.o. the shug lg airline is in investment talks with american airlines and delta airlines. sources say that jal could form a joint venture with american airlines and may get a capital injection. the report asks that delta could also inject more than $500 million into jal. the nikkei says that jal could launch a capital raising to help fund the restructuring. well, coming up next on "worldwide exchange," we have a look at how the asian markets have come since the lehman collapse a year ago. .. plus a focus on central banks. >> because we took decisions that were extremely bold, extremely nonconventional in many respects. and in the very, very quick fashion, we could prevent a total meltdown of global
finance. >> but did central banks get it right? or have they set the global economy up for a dangerous surge of inflation? stay tuned for more coverage of that. i'm racing cross country in this small sidecar, but i've still got room for the internet. with my new netbook from at&t. with its built-in 3g network, it's fast and small, so it goes places other laptops can't. i'm bill kurtis, and i've got plenty of room for the internet. and the nation's fastest 3g network. gun it, mick. (announcer) sign up today and get a netbook for $199.99 after mail-in rebate. with built-in access to the nation's fastest 3g network. only from at&t. if you get sick, or change jobs. eight ways reform matters to you. a cap on deductibles and out-of-pocket costs.
different place after the collapse of lehman brothers. the government owning large stakes. we have a special report mapping up what economic landscape now looks like. and if you haven't gone bankrupt, maybe the recession wouldn't have been so severe with the benefit of hindsight, should lehman have been saved? vote in our poll on that. meanwhile regulators still haven't come to a conclusion on what to do about banks capital. but the governments decide on what to do. differences are emerging. is there a new u.s.-europe dispute brewing? experts gave advice on how to trade after lehman. what they have to say now about how to preserve your capital. all that and more on cnbc.com. you're watching "worldwide exchange" and our special coverage on the year since the entire world continued. as far as the markets are
concerned today, with the global 300 is coming down 34 points.. it's interesting, a lot of focus last week, of course, on what was going on the dollar. it's rebounded slightly this morning. stocks are slightly weaker. you can see there actually on the 12-month, collapse down around 13%.%. we've recovered a long way from the march lows. european stock markets today are a little bit weaker. down 1%, today was up over 51% last week, gone down about a percent at the moment. julia, how are the figures looking right now? >> well, here in the u.s., let's look at the futures. they're trading down, the dow is off about 11% from fair value, and s&p is up a bit more than 9 from fair value. and ended the year positive as of friday, the dow is up 9.45%, more over to you. >> well, let's go around to what's happening in the asia
markets one year later frommer reporters around the region. starting with adam in singapore. ended the day down about one day 1%, 1,634. the index year-to-date up about 45%, a remarkable recovery. and since lehman brothers collapsed, this market is up close to 11%. lehman brother's collapse had an effect on south korean banks, only some of the institutions had exposure to some of the corporate bonds in lehman, but given the global financial connection that we see in the markets, there was a knock on a domino effect across the board, the funding markets seized up, the commercial paper market seized up and this was a huge negative for south korean banks because of the high loan to deposit ratios and in some cases higher than the deposit ratios. to feed the appetite, a lot of institutions went to the the offshore markets to borrow u.s.
dollars. u.s. dollar libor rates skyrocketed to 4.8% before scaling down to .3%, and the korean one plunged to 1,500 versus the u.s. dollar. of course the government in south korea stepped in to guarantee all of these fx loans, set up the agreements with the federal reserve and that extended across china and japan, as well, but the banks were very, very affected by this, because they did require to borrow heavily offshore. these are knock-in contracts that they sold to exporters, the one was trading at 900, depreciated to 1,500, and that's still ongoing in terms of who is actually liable for these losses. what's interesting is that korea could've saved lehman brothers to some degree. they offered to buy lehman brothers in september, they didn't agree on pricing and the rest of the board of lehman brothers rejected the offer and the following days of the feud with the bankruptcy of lehman brothers. that's an interesting thing to
know from the asian perspective. on to hong kong with emily.. >> thanks, adam. and we saw the hang seng index ending lower by about 1%, 20,932 with mining and oil stocks weak. but one year ago today the hang seng index was at 19,351. what does that mean? it's gained about 8.6% since then. we usually track the dow and the u.s. markets, butut the hang se index also has a tendency to follow what's happened in the shanghai composite. today it managed a gain of 1.2% following on from the gains of friday, 2.2% higher onon the august economic data. but one year ago today in the shanghai markets, we have put on 45% since september the 14th. the shanghai composite did manage to hit a one-month high breaking the 3,000 threshold. and a strong day today for the shanghai market. china's banking system has been
more conservative. so the mainland banks, rather, unscathed from the financial crisis. but exports from the united states and from europe obviously taking a hit that way. we have seen the chinese market suspend ipos, since september of last year, only recently on the mainland since june had they released and resumed the ipos. and since then, we've had $3.3 billion in listings. the mainland listings amounted to 23, both in shanghai as well as in -- and the biggest ipo next wednesday china in shanghai as well as here in hong kong.. i'll leave it there for now, let's get to mumbai. >> well, thanks for that. let's look how the india markets are trading. first about 4.5%, its measures in realty have taken a hit, it's banking, and it's absolutely flat right now.
the broader markets, especially the index right now is also flat. the one top story which is taking place right now, there are reports that they are in talk with future group for a cash and line, future group has two listed entities, one is future capital holding.g. let's see what comes out of that deal and if it does take place.. but one year after lehman, how does the index card look?? the nifty has gained about 80% ytd, but not without trials and tribulations, hit rock bottom in october and once again in march. and from this the nifty has gained about 91%.. one thing which aided this recovery has been the kind of fund flows that indian markets have soaked in. so the siis have pumped in about $8.8 billion this year, last year they'd taken out about $12 billion. of course, if this continues, if the funds continue, we're on course to put back money into
2009 what was taken out in '08. how do the bonds fair? well, they saw fluctuation between 5% and 7.5%. saw some huge fluctuations. it ranged about 53.7 on the high side, about 26.9. and right now trading in the middle. and the deflationary concerns have gone to inflationary. >> riba, thank you so mch. on now to tokyo, joining us now for a look at how tokyo stocks have performed since lehman. >> hi, thank you. looking back at the past year, tokyo stocks have rebounded over 40% after hitting bottom last march, but compared to other asian markets where stocks have surpassed a lehman level, the nikkei 225 around 16% lower than it was last september.
japan's heavy dependence on exports has made it overly vulnerable to the economic slowdown. after a launch of fiscal stimuli by the governments around the world, lower the credit risk exposure, japan's stock seems to be facing difficulty when competing for attention in new markets boasting growth potential. meanwhile lehman brothers bankruptcy changed the landscape of japan's financial sector. they acquired some operations of lehman brothers is showing signs over recovery. on the other hand, the company which had been citi group's financial arm becoming one of the top three firms in the field. today the nikkei 225 dropped over 2% due to the yen hitting a seven-month high and climbing to the 90 level against the dollar. exporters such as automakers and electronics were hit, and in tokyo, stock exchange's first section more than 80% of stocks declined. that's all from the nikkei
business report. >> thank you very much, makiko. steve is actually standing by in london where many of the investment banks.. the old headquarters of lehman currently employed. how well do you think barclay's have done out of the lehman collapse? >> reporter: they've done very well. they've managed to leapfrog up the various tables. some would never have been able to do organic in a short period of time. as we've heard from japan, there have been some teething problems, especially on the acquisition, a real clash of cultures, the recent departure of the head of the asian operation just shows that some of those tensions are still there. but barclay's may well have benefitted from the fact it couldn't buy the whole of lehman. got the massive u.s. distribution channels from the u.s. brokerage, the m & a, et cetera.
so actually in the end bob diamond may have yielded the best possible scenario for barclay's, which is literally just over to my left. there was a real question whether the banks have learned anything. when we look at the risk adjusted assets on the balance sheet, there is a concern that actually there is more risk on the table than a year ago. that actually we've got 40% more risk than we had in 2005, and until we get more regulation and we draw a stimulus, the balance sheet of these banks won't be diminished at all. but for the moment, everything seems fairly bright on the one-year anniversary. more m&a, and the markets are showing a very good vein of form. >> i'm not sure julia -- we'll clarify that in a few moment's time. he said they've changed the way they're accounting rather than less. steve we'll come back to you in a few moment's time. julia? one year after the collapse of lehman brothers, the question
on everyone's mind remains who is to blame for the financial crisis? >> we went through an era of excess where the policy makers, the politicians, the central bankers thought that we could pull it off through this ideologically driven notion of self-regulation. that was ludicrous. a lot of this is illogical outgrowth of any of the regulations in the pre-crisis period. >> who is more to blame?? the bankers or the government? joining us right after this break is a former uk chancellor lord norman lamont.
welcome to a special worldwide exchange, one year on from that weekend that shook the entire world. here are the top business stories from around the world. president barack obama will be addressing wall street with the lehman anniversary speech. and here in europe, some markets heading lower breaking a six-session winning streak. here in asia, most in the red, except for china which closed at a one-month high. hello, you're watching "worldwide exchange," special
focus the year on since the collapse of lehman. the global perspective on the shock wave that spread around the world after that fateful weekend when the banking giant was deemed not too big to fail. a reminder of what we have coming up on the program for you. in the next half hour, we'll focus on the british economy. lord norman lamont joins us to help put the current crisis in perspective. we'll hear from the french finance minister christine largarde, and jean claude trichet, and what to expect from president obama's speech today in wall street. right now stock markets are concerned. just a little bit off the gains of last week. the global 300 down 37 points at the moment. european stock markets down since the trading down somewhere between .75% to 1%. >> well, in terms of the
futures, they have been trading down. now, they are slightly better than they were earlier this morning. now the dow is off about 65 from fair market value, nasdaq futures also down about 13 from fair value, and s&p down more than 10 from fair value, but that is slightly better than it was earlier. mora, how is it looking in asia? >> china, really, we saw the asia markets in negative territory today, julia, we did see japan succumbing to selling pressure. the yen is going to effect the major exporters. shanghai's strength was not enough to lift hong kong out of the doldrum.. but in shanghai today, we saw more money flow into the market, at least on the buy side. money that couldn't get into the ipo found its way through other places in the market. that offset some of the losses in tire makers in japan today because of the trade stop between the united states and china. >> thanks very much..
more of the economic meltdown began well in advance of the lehman collapse, but the implosion took everyone by surprise. one year on, there are signs of recovery. most financial markets, but the u.s. unemployment rate is still climbing. of course leaving many to ask if a jobless recovery is, in fact, what we're seeing. >> lehman brothers, that triggered the whole downturn in the economy put us in a recession we haven't seen for a long, long time in our world. >> it took what looked to be a moderate recession and turned it into the deepest recession any of us have seen in our professional careers. >> this was as deep as we've seen since the great crash. >> we've made a lot of progress, a huge amount of progress, but we're not out of the woods yet. >> the sentiment has worsened versus a year ago. now it's starting to stabilize.. >> all kinds of unexpected
things have happened, it makes in sense to try to pretend you can anticipate things. you can't. >> let's go to view now on the wider economic impact of lehman's fail. the former british chancellor lord norman lamont. thanks for joining us. >> still with us, julian pendock. steve, of course, is still in the warf, as well. signs we're coming out of the recession. in your own view, how sustainable is the economic recovery? >> well, i think what we're seeing is this that is not the end of the world. we're seeing that output is stopping wholly, but it's important to distinguish between that and the strong recovery. we are going to see the third quarter gdp figures in a few week's time for the uk economy. everybody's saying there is a
rise, we shall see. maybe there is a rise. but i think the road ahead is not going to be a strong recovery. because i think banks are going to be cautious about lending. they need to rebuild their balance sheets, there is a lot of debt deflation in the system. it's going to take a long, long time, we're not getting back to normal. what we are seeing is the end of the fear that this was the end of the world. now, that should not be confused with a very strong recovery. and personally, it's not my business nor am i competent to forecast all markets, but i'm a little bit suspicious the markets may be getting ahead of themselves. >> we'll come on to that in a second. how suspicious are you that we may see what some people have labeled this double-dip recession? we've seen a recovery on the back of stockpiling on certain commodities by china. but without a follow through from the consumer, we're at risk for another dipback into recession. >> well, i think that is a risk.
i'm not saying who knows the future, no one knows the future. i'm not saying there will be a double dip. but where i expect is that we may have some quarters even in the future of very low growth or negative growth. we may bump along the bottom for quite some time. and the consumer in the united states and here has got to rebuild his and her balance sheet. and i don't think we can return. this is the other great problem that is not yet been addressed. we cannot return entirely to this imbalance between asia and the west and asia funding the consumption of the west. it's too unstable a situation. >> now, lord lamont, to follow on that, in terms of the u.s. perspective, the united states may have led the global economy into this economic recession, but what role will the u.s. play in terms of pulling out of it? can we get a proper recovery without a recovery of jobs as we see the u.s. jobless numbers
continue to remain weak. and the same holds true for housing. i'd like to hear what julian pendock thinks on that. >> well, i think what you said mirrors very much what i was saying a second ago. i think the consumer is not going to be able to power a recovery. that's why i think it will be hesitant. i think from what i read, i don't know a lot about it, the united states housing market, although showing some signs of improvement is still a lot of negative equity. i think a lot of people are still lacking confidence. i can't see the u.s. consumer anymore i can see the british consumer leading a great recovery. that's why, i think, it will be a pretty fragile, pretty gradual recovery, but it will be a recovery. >> from my perspective, if you look at the numbers concerning the u.s., because fixed assets investments in the u.s. has
fallen off a cliff. the percentage of gdp has now actually risen to 82% from 76% or 77% previously, but the function of falloff in other areas, and a fall in gdp. people are talking about deleveraging, but it's still going up. again, a function of that being played. you have all of the corporate debts in the late '90s, by alan greenspan slashing rates, and now it's moving on to government balance sheets. for all of the talk of deleveraging, i think you have to look at the overall system like that and there's no signs at all that's coming down. >> jim, the question on many people's minds right now, what is this recovery going to look like? is it going to be v-shaped, u-shaped, l-shaped. >> in 2008, everybody stopped buying everything, now people
are buying rice, soap, and some other things. things look a little better. but lord lamont was right, there are terrible imbalances in the world economy. and instead of being resolve ld, they're getting worse. america's starting protectionism again. the french are doing it. everybody's becoming protectionists and that's going to make things worse. this is not over yet. >> let me ask you about china. the one bright spot around the world is china's target of meeting 8% growth. they believe they can achieve this year. they were one of the first to come out with a massive stimulus program to help boost or secure their economy so to speak. do you think china is helping to at least buffer the rest of the world? >> china saved up a lot of money for a rainy day, it's rainy and they're starting to spend it. but the chinese economy is 1/10 of the u.s. and european economy. they're doing great things, but china cannot pull out america and india. china and even india or europe out of all of this.
their economy is 1/10 of the size of america and europe.e. hallelujah, let them do good things, but it's not going to save the world. >> lord lamont, if i may come back to you, julian is referring to the amount of debt from corporations and individuals to the government balance sheet, not only in the united kingdom, but around the world.d. how much of this is a danger to a long sustained recovery?? the fact that we're going to see increased levels of taxation on a smaller working population for many years to come? >> i think it is a danger. a lot of people have been saying, well, after the second world war, britain lived with a high level of debt, after the wars. but this is happening in so many countries around the globe simultaneously that there must be a great danger that interest rates will rise suddenly, interest rates on government securities at the moment are low because official rates are low, although they're also in contradiction somewhat to the direction of equity markets.
i think there are huge dangers in the level of government indebtedness because it's happening everywhere in the world. and as you say, this will mean that in the end, taxes have to go up, spending has to be cut, and this will be a further downward pressure on the economy. having said that, i think it is essential that this problem is grappled with fairly soon. >> yeah, and what we have seen is at the moment around the globe, governments have been able to raise capital through the debt markets, guild auctions, and the much-noted auctions have gone well, the indirects have taken large participation, but how much more money are these governments going to be able to raise at these kind of levels? especially if we believe the next leg of this story is there will be some return of some sort of inflation, which, of course, will mean that investors will demand a greater return for investing in government paper? >> well, i think it would be inprudent to assume that interest rates and government debt are going to remain where they are for very long.
>> and i have a question in terms of bringing this back to corporations. i know in the united states we've seen corporate earnings improve, but there are a lot of questions of whether or not the fundamentals of corporate america are any stronger because a lot are recoverying just because of cost cutting. julian, you say that the fdic charts show that banks are underproviding. what is the impact of that? and what does that say about the real health of banks and corporations? >> well, you have to take that into context of a host of other issues. look at jpmorgan in the first half or their trading revenues, fixed income trading revenues. we're higher than a year ago. there's funds in the balance sheets, one side gaining shift, et cetera, i could go on for hours about the banking accounts. but what it means is that for the moment the balance sheets are not being cleared up. now, according to the imf, if the whole of the banking system
u.s. and europe were to get back to capital ratios seen in the mid-90s, that would be something like $1.7 trillion u.s. in fresh capital versus the, the point is they're not being cleared up and that has negative implications for the real economy. >> if julian's right, still huge amount to do on banks. >> well, i think julian is right. and i read and all of your viewers follow markets much more closely than i do, but i read that the indices that measure subprime securities are at very, very low levels even for aaa rated packages down at 38 cents on the dollar and for aa it's something like 4 cents on the dollar. if these figures are remotely right, that means these amounts have to be written off. and i think julian is right, the balance sheets of banks from what i read are not being cleaned up quickly enough.
this means that obviously balance sheets are not strong enough, meaning lending will be restrained. it means we will have for some years to come a very slow very gradual recovery. >> and jim, when does that -- if they're both right, when does that realization hit investors? because at the moment we seem to be riding this wave of incredible stimulus being put in the system and money popping up in commodities, from china stockpiling. when does that meet this realization of what we're talking about with the banks? >> well, i would expect there to be probably a currency or a crisis or semicrisis this fall or maybe next year. the world is starting to catch on. the problems are not behind us. julian keeps talking about the problems with american banks, not just american banks, all banks. it's crony capitalism, bernanke
and greenspan are bailing out their friends so they can keep their cars.. the world problems are still out there, central europe has gigantic amounts of loans that haven't been dealt with yet. this is not going away any time soon, and the great risk is, of course, we get deeper into economic problems and/or we turn into terrible inflation. this has been a terrible failure of regulation, which julian was talking about before. the regulators have not understood what was going on, they've been totally wrong, bailed out their friends rather than letting the system do what it's supposed to do. we haven't seen the worst yet. >> jim there mentioned the idea of currency crisis.. a lot of focus on the dollar getting weaker over the last few weeks and the impact that's having on asset markets. as a man who has experienced currency crisis yourself, do you foresee that's a possibility for countries around the world?d? >> well, i think the dollar is becoming a carry currency. and of course, if you've got any
bounceback in the dollar, the consequences for that for those who had borrowed dollars to buy assets could be quite catastrophic. their assets would be less and they'd have to repay more. and that strikes me -- >> what would cause a bounceback? the u.s. government coming out and saying actually we don't want weaken any further.r. could they do that? >> well, market's been going in one direction forever. any partial bounceback could cause very great problems indeed. i see this new phenomenon of the dollar becoming a carry currency as quite a risky phenomenon. >> for now we'll let you go, thanks very much, lord lamont, former british chancellor. everyone is sticking around. coming up on "worldwide exchange," we'll continue the discussion, the role the banks played. did they help stave off the
worst recession? a lot of celebration over the fact that progressive monetary easing has led the way in fostering recovery, but there's not a whole lot of appreciation over the role the central banks played in getting us into this mess in the first place. carol, when you replaced casual friday with nordic tuesday,
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welcome back to this worldwide exchange special. one year ago lehman employees collected their belongings and filed out of their buildings. there was a sense of utter shock and disbelief that the u.s. treasury secretary hank paulson and the fed would let the bank go to the wall. but whose fault was it? while some in the industry think the bankers took advantage of the system, the chairman of morgan stanley asia puts much of the blame on the regulators themselves. >> we went through an era of excess where the policy makers, the politicians, the central bankers thought that we could pull it off through this ideologically driven notion of self-regulation. that was ludicrous. a lot of this is illogical outgrowth of the complete lack of any regulations in the
pre-crisis period. >> finance remains tight, banks hesitant to lend, that's prompted the french minister to write to the country's main banks urging them to explain their lending policy and encourage them to do more to help clients with credit. we asked her what she thought of global government's response to the collapse of lehman brothers. >> i think the decision concerning lehman brothers was itself wrong. and i said so almost the day after if not the day before. but after that, what took place was an extraordinary concerted coordinated response by central banks, by governments. we all reacted as in as coordinated fashion as we could. we decided not to let banks fail because we had to restore confidence. we took exceptional measures in very, very short spans of time
because there was urgency. as far as france was concerned, knowing very well they would be the first victims. looked at the banking system and particularly the interbanking credit system to make sure that money would continue to flow and thanks to them our central bank and central banks in various european states followed through and were extremely active. and then we started the stimulus package. it was in that order. the financial circuits and the stimulus packages. >> would you say that there were some standout decisions taken?n? >> regarded as a critical step, the statements made by heads of state. certainly nicholas sarkozy, when he said publicly, we will not let banks fail, and savings and deposits will be protected.
i think that was a key decision and a key statement to make to restore confidence. because at that point, if you remember, there was a complete shortage of confidence. not only within financial institutions and between financial institutions because they didn't know which one was going to be the next one to go down. but even in the public. there were lots of people saying, you know, where am i going to put my savings? should i withdraw money from the bank? where are we all going? so for reliable, accountable, solid members of government, heads of governments to say we will not let that happen, your money's secure where it is. we'll be there and we'll put our guarantees on the line, i think that was a major move. >> christine largarde. and the french president's currently threatening of walk out of the g-20 summit in pittsburgh unless there's an
agreement or there's an agreement to get an agreement on bank bonuses. that's according to a newspaper in france, as well. but as the crisis eases, is complacency creeping back in? lord lamont is still with us. reports of your demise or departure were greatly exaggerated, jim roger is here, as well. while we have a little bit longer, lord lamont, are you worried complacency's still in the system? that's creating this risk appetite. >> i am a bit worried about complacency because people are reacting as though this was a strong recovery rather than just the beginning of the end of the fallen out, or the end in the fall of output, i think as i said earlier, that is very different from a strong recovery. i think also we need to focus on the banking system. the banks have suffered from the collapse of the bubble.
but we still have to see what happens to the banks from the bad debts that are going to occur, have occurred from the recession and from the period of trend growth. there will still be plenty of bad debts to come through. and i would not be surprised if some banks didn't need to have more capital. hopefully they will be able to get it from the market rather than from governments. but whether banks are strong enough yet is something that i think we need to follow pretty closely. >> yeah, it seems strange to me, jim, and i haven't got my square at this one, yet. at the same time we want banks to raise capital, at the same time the politicians are telling them to lend more. i can't get that one straight in my head. >> well, the politicians don't have it right. stephen roach before saying they had blind faith. the government had been making mistakes. had they let long-term capital
management fail and the effects run through the system, we wouldn't have all of these problems. they've had contradictions in their own heads because they have not known what was going on for at least 15 or 20 years. you've been on television for a while, you ought to figure that out by now. >> this is an interesting point, right. we looked at the response to lccn, and we call it the greenspan put. i wonder now whether we're putting on a post lehman aig, fannie and freddie put. >> ross, you heard say when lehman failed, we all jumped in. all the bankers, government officials and bureaucrats in the world loved they failed because they could jump in and support everybody else. you heard what she said, we all acted around the world the next day. she loves it. she's got -- it's the french put. >> jim, here on the one-year anniversary of lehman's failure, president obama's making his speech on wall street tonight and he's primarily looking in
the speech to restart the push to regulate. the big question is, can he get the support that he needs to really implement systemic regulation of the banks here? julian, i'll be curious for your thoughts on this. >> that depends, the point is there's a lot of vested interest, but i do think something -- i hate to use the phrase something has to be done. but going back to jim's point, we have to get back to normal. the last decade was not normal. i have interest to see what lord lamont has to say on this, as well. >> well, i think you're absolutely right. we deluded ourself in the old cliche that this time it is different. and not enough attention in the uk was paid to house prices in particular. and we thought we could just steam along with recovery that would never end. and i think the regime for the bank of england, which the government slightly altered from the one it inherited needs to be re-examined again so that there
is more attention paid to wider stability rather than just a narrow definition of inflation. but could i just say, i'd rather be with mr. rogers, the french finance minister was saying she thought the way lehman's was handled was a mistake, i'm not so sure. but the important point, lehman brothers was not the cause of what happened. it was not in any way the cause, it was the cause of secondary effects. what caused the crisis was the underlying causes, was the bubble, was the debt deflation, that was absolutely inevitable. whatever the decision about lehman brothers, i think you would assume probably move elsewhere within the system. >> okay. we'll leave it there. we are now going to let you go. thank you for staying on longer. julian, jim, steve will be back, as well, with us in a few moment's time. mora? well, coming up in the next hour, one year ago when lehman
collapsed, saw the banking landscape changing forever. one year on now, let's have a look at how the landscape has exactly changed and how the industry has transformed itself. >> i do believe that the options that were available were all looked at. none of us wanted this necessarily to be the answer, , but that was really the only option that was left after looking at every other possibility. he ran off with his secretary! she's 23 years old!
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it was the most dramatic weekend wall street has ever known, america's fore figures investment bank about to collapse and repercussions felt throughout the world. >> we kind of approached the edge and looked over. >> an enormous shock was delivered to the system. >> the collapse of lehman, i think was a pivotal moment. we had to prepare for something which was really big. really big. hello, welcome to a special edition of "worldwide exchange." today our focus on the drama that unfolded last september when wall street titan lehman brothers was forced into bankruptcy. ahead of president barack
obama's lehman brothers anniversary speech, we'll assess the government's efforts to fore stall another great depression. can china lead the global economy out of recession? we'll be talking to jim rogers and ask whether china's recovery currently lacks balance. >> reporter: and i'm steve sedgwick in the heart of the london financial sector, the bankers appeared to have returned to their swagger, but are there storm clouds ahead? we'll speak to some of the key bankers. we continue our coverage of the one-year anniversary of the collapse of lehman brothers by listening to sammy flockhart. speaking about the lessons he learned. >> -- i think we -- it was shown certainly that we had strong capital liquidity, but many other banks did not. and we're a leverage model
dependent upon money market funding. it's not sustainable. i think that's one lesson that can be learned. >> you went through capital raising. next up is the possible shanghai listing. you don't need money, you're not doing it for that reason, are you? >> well, we're principally doing it because we've got a very large and significant business in china. it's a market that is opening up to international companies, that's the intention of the chinese authorities. and, you know, hsbc, we've got the -- as has been said, we've got the s in the name and it makes a lot of sense. >> what i'm more interested in, from your private banking side and also your affluent side. how different is it now in terms of the types of products you're trying to sell to investors? and what do investors want these days? are they risk averts? >> well, retail investors slightly different from your high-end private banking climbs, and they have a number of requirements from private banking, you know, to preserve
capital or to give reasonable growth over a period. they're different. they're also on many occasions much more sophisticated in terms of the investment they want. the retail investor is quite different. and i think just talking about that, the retail investor certainly wants more transparency now, wants simpler products, wants actually to have products that have less risk. but again, with low interest rates, you know, there's not many attractive investment options around at the moment and that's why you see a lot of people going back into the stock market. >> what about high net worth? >> high net worth individuals have d risk, as well. but they'll come back and they've got more sophistication in terms of the types of product and levels of risk and a longer term viewpoint than a retail investor. >> so with the focus now on banking, let's reintroduce jim rogers, ceo of rogers holdings joining us from singapore and vince farrell joining us from new york. thank you, both, for joining us.
now, jim, just to start with you, let's talk about regulation. the banks that were too big to fail a year ago are now even bigger. what has been accomplished in terms of regulation? and what do you think still needs to be accomplished? >> well, first of all, this whole problem was not caused by lehman brothers or lehman brothers failure, lehman brothers didn't call aig to fail or freddie mac to fail or iceland to fail. a lot of people have been failing here in the last year or two or three, lehman brothers was an effect and not a cause. the real problem, julia, over the past 10 to 15 years has been that the regulators have not let anybody fail. they have pulled in crony capitalism, every time somebody got into trouble, they would call up mr. greenspan or mr. bernanke and say save me. and they would save them. they would prop people up. had they let people fail, we would've solved this problem long ago. they refuse to let the market do what the market's supposed to
do. they've propped everybody up. there's been huge failure of regulation, even when they were supposed to do something such as with mr. madoff, they didn't know what they were doing. these guys -- i don't know why they're not in jail. >> so, vince, i want to hear if you agree with jim on this. do you think the regulators needed to let more banks fail? or do you think we need stricter regulations? >> well, julia, i agree with jim, and i think i heard the segment before this. if you roll it back to long-term capital at the end of the 1990s, when this first potential for huge failure first presented itself, we should've acted then. regulations are actually on the books, they're just not enforced. i wondered if i could jump ahead for just a second. it is what it is right now and i think clearly the regulators are ineffective and governments are not going to let banks fail. one way out of this is to make the investment bankers that dream up all of this toxic stuff get paid and the stuff they
create. the idea of just a had a great quarter, which we shovelled a lot of the stuff out of the door, we're going to give you a lot of cash, give them the paper you just created. i have a feeling if your on self-interest is on the line you might be a little more careful about what you create. >> i understand that actually there's been balance sheet increasing either taking on a lot of real economy companies which they refuse to write down to market levels. when and if are we going to see this happen? surely that is what we need to happen that we see real write-downs and the valuations of the banks that we all own a slice of right now. >> well, you could also get rid of them by giving bonuses to the bankers. they keep giving themselves bonuses, but bonuses in real money, cash, why don't they give out the toxic waste? most of the toxic waste came from the bankers in the first place, let them have it and let the regulators have some of it. let them pay themselves in toxic waste. they're the ones that approved
all of this. alan greenspan for years said this is good, this is good that's happening. >> surely bonuses, it's a red herring. if you don't pay bankers money to do the job they're doing, they're going to go out of the investment bank, they're going to go to boutiques, hedge funds. we're going to lose track if we don't keep it in the more regulated area. >> wait, that's the way the world's supposed to work, you know, when people fail new bankers rise and take over. in my lifetime on wall street, at least 20 or 30 banks have failed. you don't remember reynolds and company, but they all failed and dozens more.. the world survived. new bankers start, they rise up, they build up new great investment banking firms, goldman sachs started in the '20s when everybody else was failing. come on, this has been going on for years. who cares if some bankers disappear. it's not the end of the world. turn in their cars and start driving taxis. >> if we want to know what this toxic stuff is worth, tell the
bankers to figure out what it's worth today, pay that to themselves in bonus. whatever value they get to is going to be what it ought to be valued at and then you'll start to clear this bad stuff off the balance sheets and get back to a more normal state. >> gentlemen, if i could jump in.. vince, if the argument a year ago was that some of these banks were too big to fall and hence needed government intervention and help, with some of the mergers and deals that have been done to save the smaller players in the industry, are they even bigger now? >> i'm afraid they're only bigger, they're more convoluted. and we've also gotten so scared to let our children go on the sidewalk to play. say, oh, my gosh, we can't let anybody fail. i think jim has articulately pointed out, you have the obligation to succeed but you also have the obligation to fail if you don't do a good job.
nobody set out to be a thief. nobody set out to be bad, but if you let a couple of white collar criminals hang in the wing, the rest of us are going to get it very, very fast, and that's the way to clear out the system.m. it periodically happens. and try to overly protect your children and not let them grow up is not a recipe for success. >> vince, i take your point. it's ross here. are we in a fit enough state to suddenly face up to as you say, you know, really mark the everything at the right price? are we capable of taking that right now? sentimentally? >> ross, that's such a good question, and we'll never know if we're right. is it the right time to go walking outside? you'll always be able to second guess and come up with an excuse for why now is not the time. actually now is probably the best time. because we've shored up some of these institutions, they actually are building up book value in some cases.
as far as the stock prices go, many of the stocks, the financial stocks are trading below tangible book value. so the market is saying that the stuff they have on the balance sheets is not worth anything. so now's as good of a time as any. and i think you have to decide what course of action you're going to take, what's the end game, what do we want to get to? a more transparent clear situation. and you'll always find a reason not to act. it's like a lawyer and accountant. there's always a reason to say no. well, you're going to have to pick a point in time and say, yes, especially now. the longer we go, the harder it is to kind of get it straight. because we'll just keep making excuses. this should have been done a while ago, it's past due. >> ross, if you're not going to do it today, when are you going to do it? wouldn't do it in 1994, wouldn't do it in 1998, when are you going to do it? 2026? we're going to have zombie capitalism for the next 10 or 15 years. the dow jones is below where it
was 11 years ago because they keep propping people up. how long are you going to let the bureaucrats run the thing so we don't have a good, clean, vibrant system? >> i want to make sure when we do it, we're not going to have a heart attack and die. that's all i care about. >> look, you can put a band-aid, you can give aspirin to a cancer patient and make him feel better for a while, that's not going to solve his problem. you've got to take more drastic action than that. >> plenty more to come from you two. also still to come on today's program, we've got lots coming up from lehman. >> we're out there hiring aggressively. as appropriately in some businesses. i think you will see that -- you know this, the early part of this year we lost some talent, and i think it's often overplayed in the press what we lost. but certainly right now, we're out there looking to build back
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government's earning large stakes, we have a special report mapping out with what the economic landscape looks like right now. and if you haven't gone bankrupt, maybe the recession wouldn't be so severe. should lehman been safe? still, regulators haven't come to a conclusion on what to do about banks capital differences emerging on each side of the atlantic. is there a new u.s.-europe dispute brewing? a year ago experts, what have they they to say now about how to preserve your capital? all that and much more on cnbc.com. let's get a quick round-up on the markets. let's take a look at the u.s. futures. right now the dow is looking like it's going to open down. it's now about 93 off fair value. the nasdaq is also down about 18 off fair value, s&p also down,
looking like we're going to have a lower open. and actually the futures are looking worse than they were about an hour ago. ross, over to you. >> thanks for that. worth pointing out the dollar is caught up against one-year lows. european stock markets over two hours into the trading day down 1.3%. resources, the reason i mention dollar is the resources in oil and gas, the biggest sector loses, autos, banks, and insurance are down, as well, sectors that are up, health care and media. let's show you where we are on the currency markets. dollar/yen at the moment, smidgen of a gain, we did talk about 1.46 at the end of the week. key technical lows, there's a bit of the technical lows, sterling/dollar back to 1.6537.
it's going to be really key, i think, to watch the fortunes of the dollar and the implications and how that's walking across other asset markets, as well. >> well, the dollar and the japanese yen is hitting the markets here in asia, especially in japan.n. as you mentioned the dollar/yen at 98 level, it got investors nervous, pushing down the exporters on concerns as we see the yen strengthening it'll only hurt profitability for japanese exporters. that's why we saw the nikkei down by 2%. shanghai outperformer reaching that 3,000 mark that it sees as a psychologically important level. there could be more up side for this market, at a one-month high now for shanghai stocks. and hong kong still down 1%, we did not get much of a boost coming from china stocks helping to bring up the hang seng index. steve sedgwick is down in
canary wharf, he's looking at the fallout in europe. steve, banks today seem to be, you know, we look at their latest set of profits, they're doing fairly well. what are they saying about where they go from here? >> reporter: i think they do believe they're doing very well, ross, and we spend a lot of time looking at the potential negatives and what needs to be happening about regulation and assets and withdraw of stimulus. but the banks in the meantime as you quite rightly say believe that things have moved on and they're doing rather well. the business moves from lehmans over to barclay's to my left. the fact remains is, there's a lot of happening for the banks at the moment. the equity raising, that has gone rather well, ipos, i've spoken to one banker who says watching the queueing up of ipos, we believe there's a lot to come. m&a, that has gone slightly better in the last couple of weeks. the disney deal, the potential
kraft deal, a lot more of that is due to come into the pipeline. of course the very strong performance of the corporate bond raising in the markets. all of this is meant something quite incredible that hiring has gone back in many cases to prelehman crisis levels. a lot of the ban banks are hiri aggressively as is bank of america merrill lynch. the first part of that weekend was the bank of america takeover of merrill lynch. now, i spoke to jonathan, the head of europe, middle east and africa about their operations at the moment, post that merger and this is what he had to say about what clients appreciate about what's happening at the moment. >> we see a difference in the way clients are looking at us now in terms of the success we're getting from clients. i think in terms across the morale of the overall platform, people really do see that a year on, strategic benefit of
bringing these two organizations together is extraordinarily compelling. >> one of the biggest benefits for you must have been the fact there are less players in the market. how much of an opportunity has this been for your merged groups? >> there are less competitors. and an organization that's been able to distinguish itself through this period of time with consistency of client service is very well positioned.. >> a lot's been made about the fact that bank of america and merrill lynch are two different cultures. how difficult has it been to integrate the two?o? >> i think individuals they look and say can this organization work? how long does it take to work? and what is there for me at the end of it? and together, and to convince people, they'll say it's not something we can do in two or three months, it's taken a longer period of time.e. >> certainly numbers in the investment banking industry were better than expected. how can you improve upon those figures going forward?
>> bear in mind, i think there are a number of areas we still have significantly more to do in. i think in terms of our courage of different geographies, in terms of our ability to get more out of markets. i think still there's more work we do on the integration. we're out there hiring aggressively, as appropriately, in certain businesses. i think you will see that -- you know this, early part of this year we lost some talent. and i think it's often overplayed in the press the debt of what we lost. but we're out there looking to build that base. >> well, we talked about the integration. what about current trading?g? how is business? >> business has been good. obviously we've released two quarters of earnings. but i think the overall backdrop of this financial environment is stronger than i thought it would be. >> reporter: that was jonathan moulds. very interesting to hear that
he's hiring aggressively. he's not alone in this. every banker pretty much i've spoken to in the last two weeks believes in certain teams in certain parts of business they need to grow and grow aggressively because there are huge opportunities out there. and if you're not taking those and seizing those before the regulation inevitably comes in, then you're going to lose your market share. but by and large it appears the bankers believe we've come a long way in the last 12 months. with that, i'll hand it back over to you. >> steve, thank you very much there. coming up next on "worldwide exchange." >> i think the decisions concerning lehman brothers was in itself wrong and i said so almost the day after if not the day before. >> the french finance minister clearly thinks that lehman brothers was too big to fail. we've been hearing from our guests on the program on "worldwide exchange." what do you think? send us your questions and thoughts about the month that shook the financial world. - ( classical music playing throughout ) - wireless can bring even more freedom to the freest country on earth.
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>> below that 5,000 level, ross, down 47 points or so, almost 1%. let's take a look at some of the movers behind that decline. and we see the basic resources stocks looking weak on the uk market. natural resources, down low, all ranking in that category. 3i, as well, dropping back, not the basic resources. and the shares are losing about 3.75%. the company says it sells an investment portfolio mainly of small european companies to a consortium through 130 million pounds. the news from that company today. elsewhere in the headlines, we're watching cadbury once again. kraft made that approach for cadbury a few days ago. that story continues to roll on. the chairman of cadbury roger carr writes to the chairman and ceo of kraft saying that their offer failed to reflect the true value and that kraft is a
low-growth conglomerate and an unappealing prospect to be absorbed into it. >> thank you, becky. we're trading lower by around 1%. the biggest gainer, deutsche bank raised the price target for that company. and one year after the collapse of lehman brothers, gives us a good chance to look at the swiss banking stocks, ubs is down 20% on the year. it's been a very turbulent year if that bank. the swiss government injected 6 billion swiss francs. let's move on to, stocks much better than ubs, up more than 5% in the last year, we did see big trades at that firm, as well. but in the meantime, also a very impressive rally or recovery in the first quarters of 2009.. and let's move along and quickly talk about nestle. the chairman of the company told
a swiss newspaper yesterday that the top executives salaries will be cut. and that's it from switzerland, now back over to new york where julia's standing by. >> thanks, carolyn. stay tuned to "worldwide exchange" in the next half hour, we'll take a look at the lessons to be learned from lehman brothers. >> it triggered for us as well as for all i would say sister banks, the sentiment that we had to prepare for something which was really big. really big.
"worldwide exchange" special focus on the year since the collapse of lehman brothers. we're bringing you the global perspective on the shock waves that spread around the world after that fateful weekend. first let me give you a quick update on the market picture this morning. the futures were looking down the last time we checked. and now let's see where those futures are. and just to remind you that last week the dow did end down. and it looks like the dow is
going to open down again today.. now the dow looks like the futures are down about 88 from fair value, nasdaq is also down about 17 from fair value, and s&p 500 futures are also down about 10. just a reminder that last week on friday, the markets did end down slightly, but for the whole week, the markets were up, the markets actually led to their highest closing levels of the year last week. now let's get over to ross. >> thanks, julie. ahead of the u.s.'s open, currently down 40%. below the previous 12 months. down 13 points since the lehman collapse, so that shows you very well how we got down to the march lows. as far as the rest of the session is concerned here. in europe, we've got losses current i currently around a percent. down that 1 percent. resources, autos, insurance, it
was for japan, as well. we're very focussed on a risk appetite as evidenced by the exit markets, what's going on with the dollar, as well. and resource stocks are down. i guess on the back of low commodities. >> yeah, well, at least right now we're seeing much lower commodity prices. oil heading toward that $68 mark as we see some strengthening in the u.s. dollar there helping to push crude prices lower. 6,842, we're going to check on brent, as well, and check the brent price. the contract for brent, here we go $67.10 a barrel. back to you, ross. >> so let me now reintroduce the guests we've been fortunate to have with us throughout "the worldwide exchange." and jim rogers, ceo of rogers holdings joins us from singapore, and canary wharf and
london is steve sedgwick. gentlemen, at the end of it all, at the end of the shocking sequence of events around the lehman failure, what has changed about the way we do business a year later? >> well, julie, i don't think much has changed at all. we haven't allowed anything to sort itself out. we tried to prop up the existing system. probably have done a reasonable job of doing it. but it seems like we're back to business as usual.l. but last tuesday, for example, there were more non-treasury bond holdings sold than any time of this year. so the capital markets have improved, but improved going back to the old way of doing business. i don't see we've had a lot of fundamental change.. and i think we need some fundamental change. and we need to allow people that have made incorrect moves to fail. and until we do that, we're going to kind of repeat this thing over and over again. what i'm scared of is it will repeat it with an accelerated pace. that late '90s where long-term capital.
you say well it was ten years until the next big crisis, i'm afraid it won't be ten years to the next big crisis. we refuse to allow the system to cleanse itself. >> meredith whitney said last week on cnbc she expects another leg down, especially when the fed and treasury wean themselves off the program you mentioned. the question is, who will step into fill that void? jim, what do you think? do you think we have another leg down this recession? do you agree with vince? >> well, vince is correct that most things haven't changed. but one thing which has changed enormously is the fact that the federal reserve in the united states has tripled its debt on its balance sheet, taken on gigantic amounts of junk as has the bank of england and the united states government has tripled, quadrupled, who knows, they don't know. we have a staggering amount of extra debt in the system, which is going to cause problems in the currency markets, inflation markets down the road,
something's going to happen that's going to make things worse whether it's this year or next year or when we see currency problems, when we see more protectionism come. this is not going to end very well at all, i'm afraid. julia keeps calling for more regulation. well, look, the problems came from the regulated sectors of the economy. it was the banks, very regulated, the insurance companies, very regulated, mortgage companies, very regulated. all of these problems came out of the regulated areas of the economy, not the unregulated areas of the economy. the problem was the regulators didn't know what they were doing. greenspan encouraged things like derivatives, sub-prime loans, and so did bernanke. bernanke told us over and over again there's no problem in the housing market in the united d states. the man monthly for years told us there were no problems. and now he's blaming it on the bankers. >> i just wonder, though jim, if there are positives which we're not drawing upon, as well in the world at the moment. we know there's a lot of
imbalance, but that's going to address itself the more we see strength coming out of the emerging markets. we've seen china relatively unscathed by this, building up domestic demand, which means sooner or later, they're going to start servicing the domestic picture, which could mean capital markets in place, as well, in china, which means the imbalances evaporate slowly over time.. and those global imbalances between u.s. debt, u.s. consumers, and supply from emerging markets, that can't go on forever. >> no, i agree. look, ross, all the money in the world is now in asia. the largest creditor nations in the world are china, japan, korea, taiwan, singapore, all of the assets are in asia now, the largest debtor nations are all in the west. yeah, it's going to resolve itself over time, but over time is a long time, i'm afraid. these things don't resolve themselves very quickly. if you start have protectionism or currency crises, we don't have time. currency crises you can't sit around and say, don't worry,
over the next 15 years everything's going to be okay. they're worried about the next 15 minutes. >> jim rogers and vince farrell, thank you for joining us, and you're sticking around. and now we're going to be hearing more about lehman brothers. coming up in the next hour of "worldwide exchange," one year ago the banking landscape was changed forever when one of the largest investment firms in the world went bankrupt. was it avoidable? and what have we learned from it? >> i do believe that the options that were available were all looked at and none of us wanted this necessarily to be the answer. but that was really the only option that was left after looking at every other -- >> plus, we get a look at the trading day ahead on wall street. before that, here's a look at how the u.s. futures are shaping up. the dow is now down about 88 from fair value, nasdaq is off about 18, and the s&p --
welcome back to cnbc's "worldwide exchange" on the one year anniversary of the demise of lehman brothers, president barack obama will give a speech outside federal hall in new york. he will be pushing congress to take action on regulatory reform in order to prevent another economic collapse. the administration official said the president will again decry the hands off approach of
washington that allow financial firms to do irresponsible ledding. also calling on global partners to coordinate so the world will not experience future economic crisis. the french president nicholas sarkozy could walk out of the summit of g-20 leaders in pittsburgh later this month if they don't reach a deal on bankers bonuses. they gave no further details. sarkozy has led a push to limit bonuses paid to bankers. and he wants to persuade they will to adopt a front on the issue. here in asia, share of japan airlines saw an 8% gain in tokyo in a day where the market was down more than 2%. this on news that the struggling airline is in investment talks with american airlines and delta airlines. sources say that jal could form a joint venture with american airlines and they also get a capital injection. the report adds that delta could also inject more than $500 million into the japanese carrier.
meanwhile the nikkei says jal could launch a capital raising worth $2.7 billion. the the health fund is restructuring. so what does the trading day hold for monday, september 14th? vince farrell, cio securities group is still with us. so vince, what do you expect today? we have a lot of economic data coming out this week, what do you expect the markets to do looking ahead of that and ahead of obama's speech this evening? >> well, we really just have mr. obama's speech today. all the data that you're referring to, julia, really starts tomorrow with the producer price index, the retail sales and what not. i have been thinking for sometime that this market rally starting last march is extended and due for correction. i think the argument economically right now is can the recovery continue? or is there the potential of another down leg? on the risky side is the u.s. consumer still has too much debt. and if you take away the government support to the economy, will probably sometime unwind itself over the course of the next half year, the consumer still is overleveraged and
undersaved. i wonder if the economic strength can continue. julia, typically when you have a sharp advance in a limited period of time, you'll give back about 1/3 to 1/2 of that adva e advance. you can still say we're in a primary up trend and this is a normal market reaction. i'm looking for the market to consolidate the gains it's had recently. typically happens in september and we're half way through the month and it hasn't occurred yet. but i am looking for us to start to pull these economic numbers apart a little bit more critically and recognize that, gee, while news is better, it's not unadulteratedly good and perhaps we've gotten ahead of ourselves. >> and i know that later this week we do have some weekly jobless claims numbers coming out. and economists are expecting a slight rise from the previous week's numbers, but it still looks like the unemployment is still going to be a major problem. what do you think the factors are going to be that will weigh on the markets and will lead to that slight downward leg as you mentioned? >> yeah, i think it's going to be as you mentioned before, the
in-depth analysis of the economic numbers that are coming. you know, on the one hand you sit there and you say, oh, i want retail sales to be up because it shows the consumer is alive and well, but the fact is, the consumer cannot be alive and well with the level of debt they have and the high rate of unemployment. so the reality is, we have to have retail sales shrink back in. within that there could some opportunities of retailers that give the consumers a value-added bargain, but that's a stock selection progress. i actually think those unemployment claims are taking on more importance than they typically do. we've been stuck in a channel of 550,000 to 600,000 claims per week. we need to have a definitive break downwards before we can say we're starting to see the end of the rise in unemployment. i think most of us feel that the rate of unemployment's going to go over 10%, which we haven't seen since 1982. that's probably already baked into the market. but the fact is, we have to start to see some signs that this might moderate over the next couple of months and claims would be where it would first
show up. >> we will be watching those signs. and also what that in-depth analysis does yield. vince farrell, thank you so much for joining us. up next, final lessons about how we view business. has anything really fundamentally changed since lehman brothers collapsed? our guest host jim rogers says not really. is there more downside to come? your last thoughts from jim in a moment.
okay. just hoefr over 10 minutes away from "squawk box." telling us what's coming up on this anniversary. >> yeah, you got that right, ross. one year later, we all know it's the month that shook the world. the fall of lehman changed the course of the nation's financial system. but is wall street back on track? we're going to talk to former lehman leader. rabinny's going to talk about the lessons learned and the chance of a double-dip recession. the president's going to give a
speech on wall street. a preview of that. gm is rolling out a new satisfaction guarantee program that will allow buyers to return their car within 60 days for a purchase price refund. we'll talk to gm's vice chairman bob lutz about that new incentive, and we'll talk with bob doll. we'll do our best, starting in about 10 minute's time. we'll see you then. >> i look forward to it, carl, thanks very much indeed. and i talked about investing. let's wrap up today's "worldwide exchange." if you're an investor, what do you do next? jim and vince are still here. jim, with all of the liquidity that's been pumped through the system, with the dollar looking like it's a funding currency, cash they seem to be putting to work in the stock and bond markets, what happens next here in the sort of short to medium term if you're an investor?
>> well, everybody's been looking at the last year in lehman brothers, it's not materially relevant as far as i'm concerned. we should be looking at the next year or next two years. i'm surprised it hasn't come up on your show. another bout of protectionism against china and the rest of the world. protectionism is getting worse and worse, i'm terribly worried about it because protectionism led to the great depression in the '30s. everybody is now getting into -- if that happens, you see the u.s. dollar already making new lows for the year. and, in fact, if it continues to go down, we could have new lows for history. i'm not suggesting it will continue to go down, but if it does, we're going to have some serious problems in the currency markets, we're going to have serious problems in the world economy if we see protectionism rising over and over again.n. so i'm worried about a lot of things. vince pointed out the market's up 50%. well, a 50% rise in six or nine
months is something to worried about. you usually have corrections after that. >> i think we can also look for the future by looking at the businesses which are still running. the lehman businesses themselves, it's jumped up the table in the debt markets, more work to do in the m&a markets because it took hold of what was primarily the good parts of a business, the u.s. distribution channel. the european and asian operations. struggled to keep the numbers but now hiring aggressively to build that business and increase that franchise. but against those two relatively positive stories, there are still around about 100 lehman businesses across europe which have got a total and pwc filing these claims at the moment of $100 billion of claims still to go against that parent company for work undone for client money that needs to be repay traited, and these kind of flies in the ointment. there's still a lot of problems despite some of the original lehman businesses appear to be
doing well. >> jim, with all of your fears, how are you as an investor hedging yourself, jim? where are you putting your money to protect yourself against your fears? >> well, i've explained on this show many times that i own basically commodities where the fundamentals are getting better. i own the yen, which is one of the few currencies and several foreign currencies, but particularly the yen the swiss franc because i see problems -- i see better fundamentals in these other areas. i don't own very many stocks at all, other than in china. >> and by the way, i have no shorts -- just saying for one of the few times i don't have any shorts. >> and vince farrell, we want to get your final thoughts, as well. on this one-year anniversary of lehman brothers failure, as you look forward to that correction you mentioned, where should investors be putting their money? and what do you anticipate moving forward?d? >> well, i think you ought to be
very cautious right now, and a private investor in the united states ought to recognize that sharp advances are usually followed by normal enough corrections. i worry about protectionism as does jim. my biggest worry is that the consumer's going to stay, not just quiet, but continue to retrench.. so i'm much more stock-specific right now. that's my business. i buy stocks. i'm somewhat short, but on balance long because i find valuations more or less reflect the outlook that i see in the next year or two. but i own some retailers, believe it or not, because the retailers that i own have very specific value added propositions to the consumer. i think a couple of the large cap technology stocks look very attractive because they have a lot of cash on the balance sheet, significant free cash flow, and in a slow growth environment, if you're looking for some measure of productivity enhancement in order to get some earnings, then i think you'll turn to technology. longer term, i agree with jim on the commodity stocks, but i feel oil needs to consolidate recent
gains, there's too much inventory in the world.. >> jim, we've got about 30 seconds left. if i can ask you for one take away from investors from this entire crisis. what's the one lesson they should take with them? >> worry about all of the debt developing on the states and learn how to sell short government bonds, that's the next bubble that's developing. long-term bonds in the united states. >> jim rogers, we want to thank you so much for joining us from singapore, vince farrell, thank you for joining us from new york, and steve sedgwick, thank you for joining us from london. now, a look at the u.s. futures before "squawk box," the futures had been trading down, now the dow continues to be down. it's off about 88 from fair value, nasdaq is down about 17 1/2 from fair value, and s&p 500 is also down.. we want to remember that friday the markets did trade lower, though, for the week last week. the markets were up. stay tuned to cnbc throughout the day for more great interviews, ross, over to you. >> plenty of coverage.
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